Last week saw shares in Naked Wines (WINE:AIM) slump 42% in a day to hit a 21-year intraday low of 84p.

Considering the stock traded close to 900p a couple of times last year thanks to the pandemic-driven surge in online consumption, this is a remarkable fall from grace.

So, what has happened to the business and why has its direct-to-consumer model fallen so far out of favour with investors?

At its peak, Naked Wines was one of the most-hyped stocks in the market and not just among UK investors.

Interviewed on CNBC last October, Glen Kacher, founder and chief investment officer of Light Street Capital, referred to the company as ‘the Netflix of wine’, sending the shares up more than 15% in a day.

Kacher, who bought a 9.9% stake in the business, called it ‘the kind of opportunity you only find once every two or three years, where you can multiply your capital many times over the next five to 10 years’.

The company’s chief executive Nick Devlin claimed at the time the addressable market in the US, the UK and Australia was around $25 billion to $30 billion, most of which was in the US.

Fast-forward to last week and the firm released an unscheduled trading update saying it was ‘reviewing potential operational and financial plans for the next 18 months’ in order to improve its profitability, rein in costs and improve its payback.

It also revealed it was ‘in active discussions to address our credit facility to reflect any revised plan’ but said it expected to have headroom to its second quarter covenant tests.

On the same day, non-executive director Pratham Ravi, who joined the firm on 25 August to represent 10% shareholder Punch Card Capital of the US (the second-biggest shareholder after Baillie Gifford with 13%), resigned after less than three weeks in the post.

Just a month before Ravi joined, the firm’s chief financial officer resigned after Devlin warned investors there would be little to no sales growth this year and he was aiming for the business to break even at the operating level.

Liberum analyst Wayne Brown suggested last week’s unexpected update ‘could imply a smaller business in the future and reining in ambitions, which makes sense considering how poor key performance indicators are’.

However, ‘the weak balance sheet, question marks around the covenants in Q1, liquidity and going concern issues and how the group will drive liquidity in Q2 suggest the trading update on 17 October could be rather negative,’ he added.

The fact former CEO Rowan Gormley has been called back for a few months’ advisory work would imply something strange is going on, suggesting that investors should brace themselves for some bad news.

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